Harbour Energy (LON: HBR) chief executive Linda Cook has issued a public plea to the chancellor to rethink much-expected changes to the windfall tax.
Her letter, published in the FT, comes as the industry holds its breath for chancellor Jeremy Hunt’s budget tomorrow and an expected surge in the North Sea windfall tax, also known as the Energy Profits Levy (EPL) by another 10%.
Cook, who heads up the North Sea’s top producer, says that levying oil and gas firms in the UK for the second time in six months would risk “driving investment out of the UK altogether.”
This would mean that investment in repurposing existing infrastructure for CO2 storage and UK-based production would be discouraged at a time when it “is critical to the UK’s energy security and longer-term energy transition,” Linda Cook writes.
Harbour is an investor in both the Acorn CCS project in Aberdeenshire and the Viking CCS scheme in the Humber region – carbon capture and storage is seen as a vital technology to meet emissions targets across the UK and internationally.
She said: “The average UK independent producer has seen their share price fall by more than 20 per cent since the EPL announcement. In the same period, the share price of the UK-listed majors has increased by almost 10 per cent and US independents have seen an increase of over 25 per cent. Increased pressure from our global providers of capital for geographic diversification should surprise no one.
“Should the chancellor levy UK oil and gas companies further — a second time in six months — he risks driving investment out of the UK altogether.
“He will do so at a time when investment — both in production and transforming infrastructure for CO₂ capture and storage — is critical to the UK’s energy security and longer-term energy transition.”
© Supplied by ShellDisproportionately hit
It’s expected that Jeremy Hunt will increase the windfall levy from 25% to 35% and extend the sunset clause by three years to 2028.
Ms Cook warned that the associated investment incentive with the windfall tax – a 91% allowance – “will not offset lasting damage to UK industry and jobs”.
The Harbour Energy boss said that independent companies, like hers, account for half of UK oil and gas investment and production in the UK, stating that “we have invested twice as much as major oil companies since 2017”.
She says that her firm uses its capital to invest in pre-existing assets from larger businesses to extend its lifespan and increase domestic energy supply.
However, in order for firms like Harbour Energy to invest in the UK energy sector, they must borrow, according to Ms Cook.
© Supplied by Harbour EnergyCook argues that this business model means businesses like hers do not see the benefits of high oil and gas prices but still pay the taxes of those who do.
She added: “The average UK independent producer has seen their share price fall by more than 20 per cent since the EPL announcement.
“In the same period, the share price of the UK-listed majors has increased by almost 10 per cent and US independents have seen an increase of over 25 per cent. Increased pressure from our global providers of capital for geographic diversification should surprise no one.”
Incoming taxation
This comes as Office senior partner for KPMG in Aberdeen, Martin Findlay said that bolstering energy security and delivering a transition is “a lot to achieve with a high tax rate”.
From a “corporate perspective” it would be “much better” if firms were able to face up to the challenges of the day with lower levies and less volatility.
But Mr Findlay acknowledged that it is “inevitable” that industry will remain a target for the Treasury, in view of the government’s deficit and the scale of profits oil and gas companies have reported in recent months.
The budget is expected to be delivered before midday tomorrow.
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